12 New recovery phase starting Vol 16 No 42, October 30, 2017
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Numbers stack up Richard Rennie richard.rennie@nzx.com
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ESPITE a swirl of economic uncertainty in the election’s wake there is plenty of evidence the numbers that matter for economic fortune are all heading upward, BNZ senior economist Doug Steel says. In presenting a sanguine view of economic prospects to agribusiness professionals at the annual KPMG agri-business seminar he remained relatively unfazed by what the three-way coalition might mean for the short-term economic outlook. He expected the numbers to keep heading up in coming months. “We are looking at lower net migration and the tax cuts that were legislated for next year are gone but we are also going to see an additional $7 billion more borrowed over the next four years, including more expenditure on health and education, another 100,000 homes over 10 years and a NZ First focus on regional development.” There was also a likelihood of agriculture going into the ETS. The underlying fundamentals of the economy when put in an international context were still very strong and should give farmers and businesses confidence, regardless of the government’s form. The economy was experiencing a rare event where all the performance indicators were sitting at or above historical averages while the bogey of
inflation remained low. The GDP growth rate was at 2.5% versus a 1.9% 10-year average, employment growth was 3.1% a year against an average of 1.6% and unemployment was running at 4.8% against an average of 5.4%. “And our current account balance as a percentage of GDP is only at 2.8% compared to an average of 3.7%.
Most world economies would kill to have statistics looking like this. Doug Steel BNZ “Most world economies would kill to have statistics looking like this.” Much of that came from success the primary sector was enjoying internationally. With the exception of wool prices, which were down 30% against their five-year average, key primary sector products were all higher than where they had been for the past five years. As recently as last week kiwifruit growers were buoyed by a lift in Zespri Green kiwifruit lifting from a forecast $5.84 a tray to $6.23 and Zespri SunGold moving from $9.28 a tray to $9.73. The one uncertainty came from the 400,000 tonnes European Union skim milk powder stockpile “It is looking then like those prices may go lower.”
ALL GOOD: The underlying economic fundamentals are strong and should give farmers and businesses confidence as Jacida Ardern’s new Government takes office, BNZ senior economist Doug Steel says. Photo: Mark Coote
Meantime, butter prices were at record highs and most likely to ease back from the peaks. Between the two was a reasonably steady whole milk powder market buoyed by firm Chinese buying. “But we think the estimate of $6.75/kg milksolids is looking a bit optimistic with WMP dipping, butter easing and SMP also staying soft.” BNZ’s estimate was for milksolids to sit nearer $6.40/
kg but Steel qualified that by pointing to tighter milk supplies out of NZ being likely given the run of wet weather this spring. The possibility of interest rates rising sooner than expected was a factor for farmers to consider given the post-election exchange rate was 5% lower than the Reserve Bank anticipated. “We think with the currency lower and inflation slightly higher and greater fiscal spend it is
likely interest rates will move up towards the end of next year.” When asked about Winston Peters’ belief the economy was in for some tough times ahead Steel acknowledged growth was likely to be less than 3% a year but that was still a reasonable rate. Risk factors lurking in the back of his observations included North Korea’s inherent instability, growing Chinese debt and how Brexit resulted in NZ lamb quota being divvied up.
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